Sugar futures soared early this year as cash-rich investment funds developed a sweet tooth, but they have gone off the boil due to big harvests, weak demand and slack momentum in energy prices. Benchmark refined sugar futures slumped to a 4-1/2-month low of $434.00 per tonne last week on fund and speculative selling.
Front-month October raw sugar futures sank recently to six-week lows, and on Tuesday were up 0.01 cents a lb at 14.92.
"They (commodity funds) have been liquidating extensively in the past week or so," Steve Platt of Archer Financial Services in Chicago said.
Investment funds' net long position in raw sugar futures has more than halved over the past year, according to US Commitment of Traders data.
Funds had pumped money into sugar futures, because of tight supplies, growing demand and increased usage of Brazilian sugarcane to make ethanol, a biofuel.
The spike in sugar prices to a 25-year peak of 19.73 cents a lb in early February encouraged farmers to increase cane plantings, thereby boosting supplies in 2006/07, including in Brazil, India, Thailand, Russia and Ukraine. "There has been a big increase in production in a number of countries, providing us with a surplus going forward," said Jonathan Kingsman of respected Paris-based sugar brokerage Societe J. Kingsman.
Expectations of a big Indian sugar crop after a good monsoon were a major bearish factor, said Sergey Gudoshnikov, senior economist of the International Sugar Organisation (ISO).
Traders also referred to weak physical demand for raw and white sugar, noting big discounts in offers of Brazilian raw sugar on the world market.
Sugar's fortunes have been linked to energy, traders and analysts said. The wildcard in the equation is if the rally in crude oil prompts producers like top grower Brazil to funnel more sugarcane to make the alternative fuel ethanol.
Funds have diverted money into metals from sugar because of disappointment over a lack of dynamic upside momentum in crude oil prices following the Israeli bombings of Lebanon.
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